While patent, trademark, and copyright cases have had a place in federal law and a home in federal court, trade secret law has been relegated to the jurisdiction of state courts. Until now. With the passage of the Defend Trade Secrets Act of 2016 (DTSA), which President Obama signed in to law on May 11, 2016, a plaintiff can pursue a trade secret claim in federal court. The DTSA amends the Economic Espionage Act, creating a federal cause of action for trade secret misappropriation. It is expected to provide uniformity to trade secret law, which should provide better predictability for litigants who seek to protect their trade secrets. It also opens the door to the federal courthouse for trade secret claims.
Despite the ability to sue in federal courts, it is not a sure bet that federal courts will experience a flood of trade secret claims. Certainly there are provisions of the DTSA that would appeal to plaintiffs, and litigants may benefit from the perceived sophistication of a federal court judge. But there are some key considerations that might cause plaintiffs to pause before filing a trade secret misappropriation action under the federal law.
Perhaps the most unique and distinguishing feature of the DTSA that would make the federal cause of action appealing to plaintiffs is that it allows plaintiffs to seek, “only in extraordinary circumstances,” an ex parte order “for seizure of property necessary to prevent the propagation or dissemination of the trade secret that is the subject of the action.” A similar remedy is already available under the Copyright Act and Lanham Act, but is generally not available under state trade secret laws. A plaintiff seeking an ex parte seizure order faces a steep climb—the plaintiff must show, among other things, that a temporary restraining order would be inadequate, that an immediate an irreparable injury will occur without the seizure order, and a likelihood of success on the issues of whether the information is a trade secret and whether the trade secret was misappropriated, or conspired to be misappropriated, by improper means. The ex parte seizure order request is not without risk either—the DTSA creates a civil cause of action against the requesting party if a person suffers damages by reason of wrongful or excessive seizure.
A key feature that may discourage plaintiffs from pursuing the federal cause of action is that of injunctive relief. Injunctions against ex-employees cannot be used to “prevent a person from entering into an employment relationship” and any conditions placed on an ex-employee’s new employment through injunctive relief requires “evidence of a threatened misappropriation and not merely information the person knows.” Many analysts view this provision as an implicit rejection by Congress of the “inevitable disclosure” theory of misappropriation. The inevitable disclosure doctrine allows for an injunction where a plaintiff can demonstrate a former employee’s new job will inevitably cause the employee to disclose or rely upon her former employee’s confidential information and trade secrets—mere possession of knowledge becomes a threat of trade secret misappropriation. While the rejection of the inevitable disclosure doctrine in the DTSA will not affect plaintiffs who live in states that have already rejected it, Plaintiffs who live in states that have allowed this theory—like Ohio—may consider sticking with a state claim for trade secret misappropriation if they do not have evidence of some sort of bad behavior that would evidence a threat of misappropriation. In fact, the DTSA does not preempt state law, leaving plaintiffs with more favorable state-law claims free to pursue those claims in state court.
Another consideration that may lead a plaintiff to file in state court is that due to Commerce Clause restrictions, the DTSA is limited in scope. The DTSA is limited to trade secrets “related to products or services used in, or intended for use in, interstate or foreign commerce.” Though it seems as though most products or services are available in interstate commerce, a product or service may only be available intrastate, leaving a plaintiff without a federal cause of action. A plaintiff must closely evaluate this factor before filing in federal court.
In sum, though the DTSA is heralded as long overdue and necessary to the protection of trade secrets, there are important considerations to be weighed by potential plaintiffs that may prevent the federal trade secret floodgates from opening. Careful consideration of the evidence available and the nature of the underlying product or service will dictate whether the federal cause of action is available or desirable. Nevertheless, the new federal trade secret protection is an important tool in a business’s intellectual property protection toolkit.
It is important to note that the DTSA does not guarantee automatic protection of trade secrets. Ohio law, as well as the DTSA, requires businesses to take active steps to maintain information’s secrecy to receive the benefit of trade secret protection. In Ohio, information qualifies as a trade secret only if it derives economic value from not being generally known, and is subject to reasonable efforts to maintain its secrecy. With the addition of the DTSA as the new law of the land, it is a good time for companies to review their non-disclosure and other agreements that protect trade secrets, and the general measures in place to protect trade secrets. Those measures can include limiting the dissemination of trade secret information to employees, marking that information confidential, keeping the information password-protected and conducting trainings on maintaining confidentiality.